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Why Is CarMax (KMX) Up 2.2% Since Last Earnings Report?

It has been about a month since the last earnings report for CarMax (KMX). Shares have added about 2.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is CarMax due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

CarMax Earnings Surpass Estimates in Q1, Rise Y/Y

CarMax Inc. has posted net earnings per share of $1.59 in first-quarter fiscal 2020 (ended May 31, 2019), up 19.5% from $1.33 in the year-ago period. Moreover, earnings surpassed the Zacks Consensus Estimate of $1.49. The company’s net earnings increased 11.8% year over year to $266.7 million.

Moreover, net sales and operating revenues in the reported quarter increased 12% year over year to $5.37 billion. The figure beat the Zacks Consensus Estimate of $5.22 billion. Total gross profit rose 12.3% year over year to $742.4 million.

In first-quarter fiscal 2020, CarMax’s used-vehicle sales rose 12.9% from the prior-year period to $4.54 billion as units sold increased 13% to 224,268 vehicles. The average selling price of used vehicles declined 0.1% from the year-ago quarter to $20,050. Comparable store used-vehicle units sold rose 9.5% from the prior-year level. This robust performance reflects improved conversion and solid growth in web traffic.

Wholesale vehicle revenues rose 7.3% from a year ago to $662.4 million in the reported quarter. Units sold increased 6.6% year over year to 120,768 vehicles, courtesy of growth in store base and appraisal buy rate. The average selling price of wholesale vehicles rose 0.2% from the prior-year quarter to $5,213.

Other sales and revenues increased 6.1% year over year. Moreover, the extended protection plan’s (EPP) revenues rose 11.2% from the year-ago level.

CarMax Auto Finance (“CAF”) reported a year-over-year increase of 0.3% in income to $116 million in the quarter under review, reflecting collective effects of 7.9% rise in average managed receivables and a slightly lower total interest margin percentage.

Store Openings

In first-quarter fiscal 2020, CarMax opened three stores, including two in new television markets — Waco, TX, and McAllen, TX, and one in the existing market (Memphis, TN).

Share Repurchase Program

In the quarter under review, the company spent $204.8 million to repurchase 3 million shares under the existing share buyback program. As of May 31, 2019, it had $1.91 billion of authorization remaining under its share repurchase program.

Financial Position

CarMax had cash and cash equivalents of $42.2 million as of May 31, 2019, down from $76.3 million in the corresponding period of 2018. Long-term debt (excluding current position) amounted $1.49 billion as of May 31, 2019, reflecting an increase from $1.29 billion in the year-ago comparable period.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, CarMax has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, CarMax has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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